Bank of America intends to apply a fee of $5 a month to its debit cards, from early 2012, to offset costs incurred due to a new stipulation that limits bank charges on debit-card transaction. The bank expects the cap to shave $2 million off its annual revenue.
Banking competitors, such as Wells Fargo and J.P. Morgan Chase, intend to test, or are already testing, comparable fee plans. The number 22 bank in the US, Regional Financial, plans to apply a $4 monthly fee on some debit-card accounts from October 2011.
The Federal Reserve Board settled on a 24-cent cap on fees paid to banks by retailers when a customer purchases goods and services using a debit card. The cap to date has been around 44 cents. The new regulations limiting debit-card transaction fees are estimated to represent an annual loss in excess of $6.5 billion for US banks and concern any bank with assets of over $10 billion.
Other plans to cover the loss include a reduction in debit-reward programs and a higher minimum balance as a cut-off point for applying certain banking fees.
The new Bank of America fee will not apply to ATM transactions and will apply to standard checking accounts but not premium accounts, traditionally exempt from many fees to keep banking customers with higher balances.
58 Million Customers Shoulder Financial Strain
The National Retail Federation (NRF) criticized banks for using the new cap as an excuse to charge higher fees, citing similar cases regarding late fees and overdraft fees. “Just as merchants and consumers are about to get some relief, they are doing it again. That does not mean Congress should not pass consumer protection laws. It speaks more to the nature of the card industry than to whether swipe fee reform should have been passed,” NRF Senior Vice President and General Counsel Mallory Duncan said in a statement.
Bank of America’s 58-million customer base is expected to make $260 million worth of purchases via debit-card payment in 2011. The monthly debit-card fees represent a large source of income for the bank.
Senator Dick Durbin of Illinois had previously touted the caps on debit card transactions, but deplores the idea that customers be made to bare the brunt of financial losses. “After years of raking in excess profits off an unfair and anticompetitive interchange system, Bank of America is trying to find new ways to pad their profits by sticking it to its customers. It’s over, unfair, and I hope their customers have the final say,” he said in a statement.
Citigroup said though it will raise checking account fees, it will not follow suit to take advantage of the monthly debit-card fees.
Key Statistics – Consumer Banking in the US (source: American Banking Association; Survey from September 2011)
- Over 70% of bank customers are getting around fees; over 80% pay a maximum of $3 a month for checking account and ATM services.
- Around 6% of bank customers pay between $7 and $9 a month.
- Only 7% of account holders pay $10 or more in monthly banking fees.
- Customers cut costs by using only ATMs affiliated with their bank, and avoid checking account fees by receiving their salary via direct deposit.